August 32009

 

Autos

PBGC to Assume $153
Million of Metaldyne Pension Plan

The Pension Benefit Guaranty Corp. announced on Friday

that it is assuming responsibility for $153 million of the pension plan
for the workers and retirees of bankrupt auto parts supplier Metaldyne
Corp.,

size='3'>Bankruptcy Law360 reported on Friday.

The company’s plan is about 53 percent funded, with assets of $177

million to cover benefit liabilities of $334 million, according to the
PBGC. The agency expects to take on about $153 million. Last week, the
pension insurer objected to the company’s plan to sell its
principal chassis operations on the basis that the request is unclear
about whether the assets would be sold free and clear of all liens,
which would violate bankruptcy law, the PBGC said. If the sale is
completed, PBGC noted, Metaldyne’s pension plan will likely
terminate. 
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Wells Fargo Objects to
GM's Bid to Dump Leases

Wells Fargo Bank Northwest NA, acting as a trustee for

investors holding bonds tied to $479 million worth of General Motors
Corp. manufacturing equipment leases, has objected to the
automaker’s attempt to reject some of those leases through
continuing liquidation proceedings in bankruptcy court,
face='Times New Roman'>
size='3'>Bankruptcy Law360 reported on Friday.

By its motion to reject certain equipment leases, GM is allowing
so-called New GM — the parts of the company that were sold to a
government-financed entity through a §363 sale — to use
so-called Old GM to improperly pick and choose among the most valuable
lease assets, while discarding the remainder, to the detriment of
bondholders, the objection said. A hearing on the rejection of the
leases is scheduled for today, according to the motion by GM’s
liquidation entity, Motors Liquidation Co., also known as Old
GM. 
href='http://bankruptcy.law360.com/print_article/114285'>Read
more. (Subscription required.)

Clunkers' Rebates at Risk

Unless Senate Acts

Transportation Secretary Ray LaHood said yesterday
that unless the Senate approves $2 billion in additional funding, the
Obama administration could be forced to halt as early as Tuesday the
'cash for clunkers' program that has become one of the most visible and
fast-acting of the government's economic-stimulus programs, the

size='3'>Wall Street Journal reported today.
The government program has helped cut stocks of unsold vehicles at many
dealerships to their lowest levels in years. U.S. auto sales have been
running at an annual pace below 10 million a year since January, a steep

drop from the normal 16 million annual sales levels earlier in the
decade. That sales collapse has led to tens of thousands of layoffs at
auto companies and the manufacturing and service firms that support
them. Senate Democratic leaders said yesterday that they hoped to bring
a $2 billion extension to the Senate floor this week as the program's
original $1 billion in funding runs low. 

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In related news, Chrysler Group LLC is dropping an
incentive plan that offered to double the government's 'cash for
clunkers' rebates amid complaints from dealers that inventory is running

short, the

size='3'>Wall Street Journal reported today.
The move also comes after the cash for clunkers program, which offers
rebates from the government of up to $4,500, brought waves of consumers
into dealer showrooms. In July Chrysler offered to double the rebate by
adding up to $4,500 in incentives of its own for customers who qualify
for the program. Effective Tuesday, Chrysler will no longer offer a flat

$4,500 rebate on top of the clunker incentive. Instead, it will vary the

size of rebates, depending on the model and brand a customer
selects. Read
more. (Subscription required.)

U.S. Trustee Seeks
Investigation into Extended Stay’s Bankruptcy

U.S. Trustee

face='Times










New

Roman' size='3'>Diana Adams is calling for a
court-ordered investigation in Extended Stay Inc.’s bankruptcy
case, saying there are “serious” fraud allegations involving

the hotel chain’s top management, Dow Jones
face='Times



New



Roman'>Daily Bankruptcy Review
size='3'>reported today. The government is raising questions about a
proposed restructuring plan that provides “critical protections
and inducements” to CEO David Lichtenstein, whose Lightstone Group

bought the 680-hotel chain in 2007 for $8 billion. Among those is a
provision that allows Lichtenstein to avoid $100 million in personal
liability stemming from the bankruptcy filing. Another provides him with

a $5 million war chest to pay for legal defense costs, according to
court documents.The restructuring plan was hashed out before Extended
Stay’s June 15 bankruptcyfiling with a group of senior lenders to
its $4.1 billion mortgage debt.

Executive Compensation

House Passes Executive
Compensation Bill

The House voted on Friday to approve (237-185)
legislation that would give shareholders greater say over executive pay
and expand the powers of regulators to limit compensation packages that
they deem improper, the
face='Times New Roman' size='3'>Washington Post
size='3'>reported on Saturday. Rather than setting precise limits on
what such firms can pay employees, the House bill adopts a more indirect

approach, taking aim at the pay practices that encourage traders and
executives to take big risks. Regulators could ban pay packages, but
would not be able to clamp down on compensation simply because it is
considered lavish. The bill also gives shareholders the right to reject
a pay package, but their vote would be advisory. Corporate compensation
committees, meanwhile, would have to sever ties with management. Aspects

of this provision have already been adopted by Wall Street firms. The
independence of compensation committee members, for instance, is a
requirement for companies to list their shares on the New York Stock
Exchange. 

href='http://www.washingtonpost.com/wp-dyn/content/article/2009/07/31/AR2009073102337_pf.html'>Read

more.

$100 Million Payday Poses

Problem for Pay Czar

In a few weeks, the Treasury Department’s czar
of executive pay will have to decide whether commodities trader Andrew
J. Hall should receive $100 million due under his contract with
Citigroup, the New York Times reported
yesterday. Hall, the head of Phibro, a small commodities trading firm in

Westport, Conn., is due for a nine-figure payday, his cut of profits
from a characteristically aggressive year of bets in the oil market.
There is little doubt that Hall is owed the money under his contract.
The problem is that his contract is with Citigroup, which was saved with

roughly $45 billion in taxpayer aid. Regulators are also pushing to curb

the role of traders like Hall, whose speculation in the energy markets
may have played a major role in the recent gyrations of oil
prices. 

href='http://www.nytimes.com/2009/08/02/business/02bonus.html?_r=1&ref=business&pagewanted=print'>Read

more.

Commentary: Troubled
Banks, Huge Bonuses

Federal pay czar Kenneth Feinberg would be right to
reject requests for big bonuses at banks that required billions in
taxpayer aid, according to a

face='Times










New

Roman' size='3'>New York Times editorial
today. Feinberg must approve bonuses for the 25 best-paid executives at
the seven big companies that are still dependent on the Troubled Asset
Relief Program — including Citi and Bank of America. He must also
approve the structure of pay for their top 100 bankers. New York
Attorney General Andrew Cuomo revealed last week that Citi paid $5.33
billion in bonuses in 2008, despite losing $27.7 billion and taking $45
billion from the TARP. Bank of America got $45 billion from the TARP and

paid $3.3 billion in bonuses. Feinberg must object to gargantuan payouts

from banks that would be bankrupt if not for taxpayers’ money.
More broadly, Feinberg must devise a structure to align bankers’
compensation with the performance of their strategies over the entire
period in which they put their bank’s capital at risk. Read
the 

href='http://www.nytimes.com/2009/08/03/opinion/03mon3.html?ref=opinion&pagewanted=print'>full

editorial.

Municipalities

California Bankruptcy
Ruling Provides a Precedent for Detroit Public
Schools

Detroit Public Schools (DPS), facing a $259 million
deficit and diminishing cost-cutting options, has a recent California
court ruling on its side as officials weigh a chapter 9 filing,
the
size='3'>Detroit News reported on Friday. 'The

bond obligations and the labor contracts are the big financial burdens
on DPS,' said retired Bankruptcy Judge Ray Reynolds Graves. 'Failure of
the constituents to make sacrifices will make chapter 9 inevitable.'
Union leaders, however, are concerned about whether parents would want
to send children to a bankrupt school district. 'Filing bankruptcy sends

the wrong message to the community,' said Keith Johnson, president of
the Detroit Federation of Teachers, one of the 10 unions and 16
bargaining units negotiating with the district. 'That would accelerate
the exodus of Detroit Public Schools.' The protections for unions do not

extend to public workers in a chapter 9 filing, a federal judge ruled in

March, allowing Vallejo, Calif., a San Francisco Bay area city of
117,000, to toss out its labor contracts when it filed for chapter 9
bankruptcy. The Vallejo decision was a turning point for municipalities
grappling with declining revenues and rising labor costs around the
country, experts say. Under Michigan's Public Act 72 of 1990, an
emergency financial manager is authorized to pursue chapter 9
bankruptcy. Robert Bobb, whom Gov. Jennifer Granholm appointed in
January, has uncovered millions in unbudgeted expenses and poorly
managed finances that have caused the deficit to skyrocket in his four
months on the job. He has met with at least two bankruptcy experts,
including Graves. 

href='http://www.detnews.com/article/20090731/SCHOOLS/907310390/California-bankruptcy-ruling-a-precedent-for-DPS'>Read

more.

Struggling Alabama County

Prepares for Government Shutdown

At least a quarter of Jefferson County’s (Ala.)
3,600 employees will be on unpaid leave and many county offices will be
closed or cutting back hours, the Associated Press reported on Saturday.

The county, with 640,000 residents, has been on the brink of filing the
nation's largest municipal bankruptcy for the past year due to a sewer
bond fiasco that remains unresolved. Subsequently,a judge ruled that the

county's occupational tax is illegal, and courts refused to let the
county spend revenue from it while officials appeal. Jefferson County
legislators, who could not agree on a new tax during the regular session

earlier this year, met Tuesday to try to reach a consensus. The old tax
provided some $75 million annually, about one-third of the county's
budget. A judge, however, ruled that the tax was repealed by a law
passed in 1999. The budget crisis struck while county officials were
wrestling with the prospect of filing what would be the largest
municipal bankruptcy in U.S. history over some $3.9 billion in sewer
bonds it can no longer afford to repay. 

href='http://www.washingtonpost.com/wp-dyn/content/article/2009/07/31/AR2009073102400_pf.html'>Read

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Bankrupt Asyst Reaches
Deals to Sell Off Assets

Bankrupt semiconductor technology provider Asyst
Technologies Inc.has reached deals to sell off its three business
operations, including its automation assets and connectivity software
assets,

size='3'>Bankruptcy Law360 reported on Friday.

Exact terms of the deals have not yet been disclosed, and the agreements

are subject to final approval by the U.S. Bankruptcy Court for the
Northern District of California. Fremont-Calif.-based Asyst expects the
transactions to close by the end of August, it said Friday. Crossing
Automation Inc. has agreed to acquire Asyst's “fab
automation” assets, which design and market load ports, wafer
sorters and radio-frequency identification devices for semiconductor and

semiconductor equipment manufacturers. 
href='http://bankruptcy.law360.com/print_article/114298'>Read
more. (Subscription required.)

Judge Dismisses Sentinel
Trustee's Suit Against Bank of New York

U.S. District Judge James B. Zagel dismissed a suit
against Bank of New York Mellon Corp. brought by the liquidation trustee

of money manager Sentinel Management Group Inc., ruling that the trustee

cannot recover for Sentinel customers hundreds of millions that were
allegedly lost as a result of a fraudulent investment scheme,

size='3'>Bankruptcy Law360 reported on Friday.

Judge Zagel concluded that the trustee cannot sue on behalf of its
customers because the individual claims at issue belong to third-party
creditors and not the bankruptcy estate. Filed in March by Frederick
Grede, as assignee of certain Sentinel’s customers’ claims,
the suit sought to recover money allegedly lost as a result of a
fraudulent scheme to leverage the customers’ assets. Grede claimed

that BoNY — which served as lender and clearing bank to Sentinel
— enabled the misuse of customer funds by allowing Sentinel to
commingle customers' assets with its own holdings and pledge those
assets as security for a loan. 
href='http://bankruptcy.law360.com/print_article/114131'>Read
more. (Subscription required.)

Analysis: Commercial Real
Estate Rally Facing a Challenge

While housing may be nearing bottom, commercial real
estate likely has much further to fall, potentially snuffing out a
significant rally in real estate investment trust stocks, the

size='3'>Wall Street Journal reported today.
REITs, which own everything from office buildings to strip malls, have
seen their shares rocket 60 percent since hitting an 18-year low on
March 6. Now REITs face at least two years of crushing debt maturities,
sliding property values, dwindling occupancy and weakening earnings.
Much of the current market rebound stems from relief that the dire
forecasts for REITs in late 2008 and early 2009 didn't come true.
However, REITs must refinance a daunting $152 billion in debt through
2013. Some REITs have crushing debt levels, such as office landlord
Maguire Properties, with 94 percent debt to capital. Anything much above

60 percent is considered onerous. Another office REIT, Kilroy Realty,
has had tenant outflows that have whittled away its occupancy rate to
near 85 percent -- the minimum level allowable under its loan
covenants. 

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